‘Oracle of Omaha’ betting on natural gas sticking around
Warren Buffett’s $9.7 billion bet on natural gas looks even more contrarian today.
As Democrat Joe Biden unveils a staggering $2 trillion cleanenergy plan — the most ambitious climate package ever offered by a presumptive presidential nominee — Buffett’s recent deal to buy Dominion Energy Inc.’s natural gas assets is a stark sign he’s expecting that the market’s shift away from fossil fuels won’t happen overnight.
The deal is “a bet that the future doesn’t come as fast as some people think,” said Jim Shanahan, an analyst who covers Buffett’s Berkshire Hathaway Inc. at Edward Jones. “I think they want to be bigger in renewables, but it’s going to take time. In the meantime, they have to be able to provide power generation to their customers.”
On its face, Berkshire’s recent deal to buy gas assets including some 7,700 miles of pipelines seems risky even for a contrarian like Buffett. The energy industry is under increasing pressure from public officials and investors to abandon coal and natural gas.
The use of natural gas for power generation, once hailed as a cleaner, cheaper alternative to coal, is now projected to drop to 36 percent in 2021 from 41 percent this year. In the last decade, prices for solar and onshore wind power have plummeted 90 percent and 70 percent respectively per megawatt-hour, according to BloombergNEF. Renewables now supply 20 percent of Americans’ power needs, up from 13 percent five years ago, according to the U.S. Energy Information Administration.
Biden’s plan, unveiled Tuesday, is an attempt to propel that surge, calling for spending $2 trillion for a clean-electricity economy and outlining a goal to have a carbonfree power sector by 2035.
But despite, or, more likely, because of those trends, Buffett is following his well-worn investing path-buying assets cheap in a buyers’ market. Natural gas futures in the U.S. dropped last month to their lowest point in 25 years. Plus, he’s one of the few buyers in a market where many utilities are searching for ways to get out. Political, regulatory and legal pressure have stymied the building of new pipelines and other infrastructure. Earlier this month, Dominion Energy and Duke Energy Corp. shelved a plan for a new gas pipeline crossing the Appalachian Trail in the face of stiff environmental opposition.
The prices and political pressure are likely to deter any new entrants, potentially allowing Buffett to reap natural gas’s historically good returns for some years coming.
“People assume we’re getting rid of coal, and then we’re getting rid of gas next,” said Noah Kaufman, a research scholar at Columbia’s Center on Global Energy Policy. But because gas is plentiful, cheap and provides roundthe-clock electricity it’s “a lot harder to get rid of.”
The deal reinforces the idea that Berkshire, despite its expansive clean-energy portfolio, isn’t a friend to environmentalists, who want a quicker shift to renewable energy. Berkshire routinely faces criticism for the company’s ties to fossil fuels. Buffett comes in at
No. 3 on Bloomberg Green’s list of billionaires whose fortunes derive largely from climate-damaging industries. He’s faced shareholder proposals from groups such as the Nebraska Peace Foundation urging Berkshire to disclose how climate change will affect its insurance subsidiaries, a significant chunk of the Berkshire empire.